Loading summary
Transcript42 lines
- [00:00]
A
Foreign. Is it just us, or is it getting a little crowded in here? This is Motley Fool Money. Welcome to Motley Fool Money with the Hidden Gems team. I'm Tyler Crow, and today I'm joined by longtime fool contributors Matt. Matt Frankel and Lou Whiteman. Earnings are still trickling in at a much slower pace where, you know, they're still on their way, but not a whole lot going on this week in that. In that regard. And much of the headlines out there today are about the conflict in the Middle east, but the Monday Crew touched on that on yesterday's show. So we're going to do a little bit of a theme today that we're calling, hey, this split space got pretty crowded awfully fast. And the theme is basically industries that used to be devoid of competition that are now all of a sudden a hotbed of startups and IPOs and investing opportunities that clearly a lot of investors are interested in today. Now, this isn't a new phenomenon. We often go through periods where a new technology captures the hearts and minds of the market, and we see a rush of new companies into that space. One that comes to mind for me as an investor and somebody who's been writing about the markets for a while was there was this period in the early 2010s where we thought natural gas was going to displace diesel engines, semi trucks and trailers for transportation of goods because diesel was so expensive, natural gas was so cheap because of the shale revolution. And, you know, that just kind of sputtered out over time. Guys, are there any other phenomenon like that that come to mind for you guys?
- [01:41]
B
3D printing just a couple of years ago, maybe quantum computing now the Bitcoin miners. Yeah, I mean, that's a weird one, but yeah, lots of, lots of times this happens.
- [01:50]
C
I'm going to go in a little bit of a different direction. I'll say ETFs. There are more ETFs now than there are individual stocks in the market, especially when it comes to these leveraged ETFs, these Sing stock ETFs that you can, you know, get two at two times exposure to them. It's. That's really blown up and it's something that, you know, how do you choose ETFs at this point? There's a lot to unpack there.
- [02:11]
A
Yeah, it's much like mu. More mutual funds in the 1990s than there were individual stocks as well. One place in particular, and this is kind of where the concept of this idea came, was one industry in particular is space or investing in space investors. It's a place where we've seen things get crowded kind of fast. You know, if we wind the clock back like 10 years ago, there were basically two companies doing rocket launches. There was United Launch alliance, which is a joint venture between Boeing and Lockheed Martin. And in Europe there was Arianespace, which is part of like Airbus and Safran and a bunch of other European companies. And then there was this plucky startup, it was called SpaceX. And they were looking to break into the industry by like drastically reducing the cost of putting stuff into space. And 10 years into the future now we're seeing a new space race, but instead of the US versus the ussr, it's companies buying to build cheap rockets, put bunch of satellites into low earth orbit and space stations, potentially to replace the International Space Station. And just this week, this is part of the reason we're talking about it. There was a private company called Sierra Space and it just did a funding round that would value it at $8 billion, which is on par with a lot of the publicly traded company valuations we're seeing today. So guys, as space becomes a more crowded, lots of players, how are you viewing the opportunities? Are there particular parts of the space business that look more attractive than others or is this really like a company by company basis where you really have to turn over stones?
- [03:38]
C
Well, yes, there it is. A company by company basis. There's a lot of potential here. Depending on the source that you're looking at, the space economy worldwide is set to roughly triple to about 2 trillion in size by 2035. And there are a lot of different types of companies that'll stand to benefit. For me, I'm looking at companies like defense stocks and other stocks that are going to benefit with the space revolution without completely focusing on it. MOOG is one company in particular that comes to mind. Ticker symbol is MOG A. It's a leader in precision motion systems that have a lot of potential applications. But it also produces the flight controls for some of the most widely used aircrafts for both military and commercial use. So, you know, companies like that that really are going to be fine regardless of whether or not they actually benefit from the space race, but have a lot of opportunities for space applications as well.
- [04:32]
B
Yeah, so there's definitely a huge opportunity, but the capacity being thrown at it is wow. Right, Tyler, to your point and what that tells me, there are going to be winners and losers. Not everyone is going to win here. Generally speaking, I think there's room for more lift specialists Even though we have seen so many companies that just want to light rockets, the logjam is the pads, the actual locations to launch from.
- [04:57]
A
You know, we, we just, if all
- [05:00]
B
of this, if, if what Matt's talking about, if this trillion dollar economy is going to emerge, we got to get a lot of things into space. We need more launch sites, we need more rockets. So even though we've seen a ton of startups here, demand will grow. We do need that capacity that they're bringing online. On the other hand though, there are some areas where I, I do think that there is too, there are too many players for the market. Two of the most popular ones
- [05:29]
A
in
- [05:29]
B
communications, we have legacy players like ses, we have a lot of newcomers, Starlink, Amazon, Leo, a whole range of others doing other things. There's also the national security stuff there too. But there's a lot of money, a lot of satellites chasing what is still a pretty limited opportunity. I don't think all of those are going to make it. In imaging. There are some pretty good established companies that can do high resolution imaging. There is a need for the product, but I don't think that product needs to be refreshed as often as their business models would like them to. I don't think the recurring revenue is going to be what they hope the economics of the business. I think they're going to be a little challenged. There's a need there. There's definitely kind of one company doing this, but is there enough volume demand for high resolution images? I don't know if there's enough to sustain all these companies.
- [06:22]
A
It's interesting. I think there's going to be a lot of parts of the supply chain or part of the value chain of space that's going to have very different economics than what we're seeing today. And then obviously space investing is going to attract a particular type of investor. Perhaps the more cavalier, maybe a little more risk on, you know, somebody that's not afraid of backing a company where the track record and profitability isn't quite there yet. So for both of you, absent profits, what are some of the things that you're looking for in the spaces you find most interesting that are going to be signs of success for companies in this industry?
- [06:58]
B
Yeah, so it's literally rocket science. Right. So I mean it's hard. And so many of these, especially because of the SPAC boom, these companies came public very early and a lot of them, I've described them as science projects funded by equity investors. I think you have to take a good look at two things here. A, will the science project work? Because that is a huge if for some of these. There's some really creative, amazing things that are being attempted. There is the question of we are using equity money to fund this R and D to find out if this works. That's where people get excited when it works. Too often the mistakes that are made is in that second question, which is can you turn this into a viable, sustainable business? There are a lot of things that we can prove in the lab or prove that will work. But to turn that into a business that has a big enough audience that you can build a revenue base to support your research in the long term, that's really, really hard to do. A lot of these total addressable markets look better in the PowerPoint than they do in the real world. So that's the filter I'm trying to use. It really think through. Like, even if this works out as planned, what is the actual market here? Who's going to spend money on this and is it sustainable long term?
- [08:14]
C
Yeah, I don't have too much to add to what Lou just said. I'm look, I look for companies with a lot of financial flexibility. That's one thing, because some space startups have a lot more than others, especially those that don't have profits. You want several years of Runway and some unique advantages in their product ramp and relationships with all the contracts and just government deals that they're getting with predictable revenue streams and things like that that'll lead to growth. And that's what I'm looking for with
- [08:42]
A
this idea of crowded spaces is going to be the ending question for both of our segments today. On a scale of 1 to 10, where 1 means there is room for a lot winners in this space and 10 means we're going to see massive consolidation before anyone even makes any money here. How crowded is the space industry today?
- [09:04]
B
So overall it's probably higher than this, but I'm going to go with a five simply because if you really look at it, there are some areas that are desperate for investment. There are some areas where there's just too crowded all in. I do think there's consolidation, but I do think there's plenty of wiggle room. So I went right down the middle of five.
- [09:21]
C
Yeah, I said eight. I think there are a lot of space startups that are not going to make money and that's why I'd advise a little bit more caution when it comes to how crowded this is and to be very selective before investing in space companies.
- [09:34]
A
After the Break. We're going to go from outer space to breaking down at the smallest level with uranium atoms.
- [09:41]
D
The old adage goes, it isn't what you say, it's how you say it. Because to truly make an impact, you need to set an example and take the lead. You have to adapt to whatever comes your way. When you're that driven, you drive an equally determined vehicle, the Range Rover Sport. The Range Rover Sport blends power, poise and performance. Its design is distinctly British and free from unnecessary details, allowing its raw agility to shine through. It combines a dynamic sporting personality with elegance to deliver a truly instinctive drive. Inside, you'll find true modern luxury with the latest innovations in comfort use. The cabin air purification system alongside active noise cancellation for all new levels of quality and quiet. Whether you prefer a choice of powerful engines or the plug in hybrid with an estimated range of 53 miles, there's an option for you with seven terrain modes to choose from. Terrain Response 2 Fine tuned your vehicle for the roads ahead. The Range Rover event is on now. Explore enhance offers@range rover.com so of all
- [10:37]
A
of the industries that are getting more crowded these days, this is the one that confounds me more than others. It's nuclear power. The Fukushima Daiichi disaster in 2011 looked like it was going to be the breaking point for nuclear power. New construction of plants was already low. And then we saw rapid shutdown shutdowns in Japan and there was accelerated retirements across Europe and the US to a lesser degree. And again we hit the fast forward button to the past 12 months and I can't ever remember fielding so many questions or opinions on uranium miners and companies looking to bring about a nuclear renaissance with novel technologies like small nuclear reactors. Companies like New Scale Power and OCLO are getting loads of attention these days, but there are lots of other private companies and smaller entities in larger corporations that are looking to get a slice of this nuclear pie as well. And one of the other stories that was a flashpoint for this today was there was a French company that was a small modular reactor and they're getting a fresh round of funding that values them at a quarter billion dollars for what is essentially, as Luke put in a previous segment, a science project. I'm a little puzzled by all the interest in nuclear power companies these days, but I want to get each of your takes. Is is all this bluster and just kind of hype for growth of power in general that are we going to really see this talk in this nuclear renaissance that's been kind of chattered about for a while actual turn into facilities construction. Like a real tangible push towards nuclear power.
- [12:16]
C
Yeah, I mean, I'm not really puzzled by it. There's a big need for power right now and it's only going to grow and it has to come from somewhere. I know you said that solar and wind, and we've had this discussion several times, are likely to be more of the near term solution. And I agree they're easier to ramp up and things like that. But it's not going to be the only solution, especially if AI infrastructure demand keeps growing as we keep seeing all the headlines. To be clear, I'm not going to go run out and invest in a bunch of nuclear startups. It's not my wheelhouse, but it's a big opportunity for sure. About 5% of US power generation currently is consumed by data centers and most experts expect that to more than double to about 12% by 2028. So pretty soon and to continue to grow from there. There's really a need for sustainable round the clock power for data centers. And while wind and solar they have a lot of potential and there are things like battery storage systems to store energy that they generate, there's a lot to like about nuclear in practice. Utility scale solar only runs for about six hours per day on average. Nuclear power, it's reliable, it's energy dense. And not only that, there's a lot of bipartisan support to develop these technologies. Like you mentioned, there's also a lot of big commitments from the big tech companies who are going to need this power. So like I said, I'm not really surprised by the hype that we're seeing.
- [13:37]
B
Yeah, I think the attention makes sense, the need is real and I do think that if they can get nuclear right, it will stomp all over some of these renewables. So I mean, I do think the opportunity is there. The hard thing here though is the payback for investors. Nuclear is hard. Nuclear is expensive. I think I'm a little hyperbole here Tyler, but every project in history it seems, has taken longer and cost more than expected. I am skeptical about SMRs and all of this until they actually get there and you see what it costs and what it looks like. If anything, scale used to be your friend at nuclear to bring the cost down. I don't know if these problems will ever get solved and I look, if anyone gets it right, there's a ton of money to be made. But I am skeptical enough about just how hard of a problem this is to solve that I am very content as an investor to sit this out until even like the fifth sixth inning. I'll get on it eventually if it actually works. But I think there is a lot to prove here before it's really investable. For me.
- [14:39]
A
One of the things that isn't quite discussed as much is we mentioned NuScale and Oclo and there's a couple other publicly traded one. But in addition there is as far as I know there's at least seven to eight more private companies or companies like GE with their, I think it's actually now GE Vernova, you have Rolls Royce companies that are massive conglomerates that are also kind of have SMRs down like in the lab. They're, they're working on them as well. And this is where I struggle a little bit with this whole thing is what's the upside and a little bit to lose point here. Generating power isn't necessarily a high return endeavor. Most of the industry, at least in the United States is regulated where there are fixed rates of return. If you're working with state regulated utilities and we've all seen the forecast for AI power demand as you alluded to, Matt, and there's that, you know, there's going to have to be power generic assets to put electrons in the system. But is lots of growth at relatively low margins, relatively low rates of return maybe 10, maybe 15 years from now really an appealing proposition or am I underselling the opportunity here?
- [15:49]
B
I think especially for the small modulars, the SMRs to work. I think that the game plan is to kind of bypass the grid and bypass the regulated utility side, offer this on a case by case basis to data centers, big users and kind of get by look, and again, if they work, I think there will be demand and I think there will be some pricing power if you can deliver it. Because I know there's a lot of competition here. I have a hard time imagining anybody figuring it out. I am not ready to say that just across the board there will be a dozen different competitors here. It's just a really hard problem. Look, a lot has to go right in that scenario and I think your point is well made. But I think there's at least a story for investors to tell themselves of how this works out as a really profitable enterprise.
- [16:38]
C
There are a few different categories here as Lou mentioned. You know, bypassing the grid is one opportunity that could potentially lead to higher margins. There are some of these nuclear startups that are going to build, you know, plants and then sell them to third parties and you Know, that's like just investing in an infrastructure investment, like, like Brookfield or Brookfield Infrastructure or things like that. So there's a lot of different ways you can go. And that's a really broad question. I don't think you're underselling the opportunity, but it's really worth kind of paying attention to how each of these are planning on making money in 2, 3, 5, 10 years once they really ramp up their scale.
- [17:12]
A
Same question as we had for space. On a scale of 1 to 10, how crowded is the nuclear industry today?
- [17:19]
B
So this one, I'll go all the way to an eight because I just, again, I have a hard time believing that anyone really figures this out. And for a bunch of them to figure it out, wow. If it happens. But I'll believe it when I see it.
- [17:32]
C
Yeah, we're on the same page. I gave it an 8. Even more so than space, there's a lot more pre revenue nuclear startups that are dominating the headlines. And, you know, like, they're not all going to make money. And those that do it could, you know, they could run out of money before they start making money. There's, there's a lot that we're going to see about that. So, yeah, I'd say about an eight after the break.
- [17:53]
A
We're going to do, instead of stocks on our radar, we're going to do stories on our radar.
- [17:57]
E
Have you been sleeping on your mattress a little too long? Like, I have. My back's getting sore more than it used to and I feel like Homer Simpson with my body shape imprinting on the mattress. But like you, I'm busy with a job and kids and who wants to go to the mattress store with the family only to deal with a pushy salesperson? That's why I was excited to learn about Leesa and their premium mattresses that you can shop for from the comfort of your own home. We wanted stability and comfort, so we went with the Legend Hybrid. It has over a thousand individually wrapped springs for extra support. But here's the great thing. It virtually eliminates motion transfer. Just in case one of us has a restless night. No matter how you sleep or your budget, Leesa has a mattress for you. They're made from premium materials right here in the US With a focus on using sustainable materials like recycled steel. Check out which mattress is right for you@leesa.com for 20% off. Plus get an extra $50 off with the promo code fool exclusive for our listeners. That's L EE E S a.com promo code fool for 20% off plus another $50 off. Support our show and let them know that we sent you after checkout Lisa.com
- [18:59]
A
promo code fool as we finish up our last segment here, we're going to go around the horn and discuss an investing story that you're following right now. So Matt, why don't you go first?
- [19:08]
C
Yeah. There's been a lot of talk about IPOs this year that are really highly anticipated. We've all heard about SpaceX and OpenAI. But Bill Ackman had to grab some attention and I'm bringing him up just because Tyler's probably tired of hearing me talking about what Ackman's doing with Howard Hughes and his various endeavors. But he just announced that his new Pershing Square vehicle, which he tried to take public in 2024 but ended up pulling the plug on it, he's giving it another try. This is the closed end fund. He aims to raise 5 to 10 billion dollars for it. And he's going to sweeten the deal by giving everyone who participates in the IPO 20 shares of the Pershing Square hedge fund that already exists for every 100 shares they buy. He doesn't do anything easy. Everything's a very complicated deal. It's a closed end fund. I'm interested to watch how it goes and if he actually can pull the trigger on this and actually get enough interest to raise 5 to 10 billion dollars.
- [19:59]
B
Should Howard Hughes investors be worried about this?
- [20:02]
C
The Howard Hughes stake is owned by the Pershing Square hedge fund that already exists. This is a closed end fund that's designed to essentially do what he's doing with Howard Hughes and buy insurance companies and other business.
- [20:14]
B
That's what I mean. If he's like, I mean, way to take your eyes off the prize over at Howard Hughes. I don't know, it just seems like he's throwing spaghetti at the wall.
- [20:25]
C
That's fair.
- [20:26]
A
Yeah. I had the exact same thought as Lou. It's kind of hard to turn Howard Hughes into the next Berkshire Hathaway when you're raising money at somewhere else to do the same thing. For my story, there's lots of headlines right now about the boogeyman that is private capital. Whether it be something about seeing a couple private capital investments default on loans. We're also seeing high rates of redemptions at private capital funds. And some of the big players in this, the Blackstones, the kkrs, Blue Owl Capital, places like this just stories abound of, oh, this could be bad, this could be bad, this could be bad. But I'm struggling to figure out if this is the thing today or if it's just more private capital boogeyman stories because I feel like we've been listening to the watch out for the private capital markets storyline for the past like two to three years now. You know, once interest rates started to climb, there was all this concern because, oh, they're all, it's all floating rate debt and all their, you know, portfolio companies are going to get in real trouble here. And yet we're now in 2026 and things still seem to be chugging along ever so slowly. So one of the things I do want to follow in the next, you know, couple months or so is, is all this media chatter just a great way to put some headlines of watch out for the private capital and get the clicks and headlines. Or if there really something behind all of these stories lately, that's a great
- [21:46]
B
one because perception is everything here too, right? Even if everything's fine, if, if enough people decide it isn't fine and there's a run, it may not matter, right? I'll, I'll throw one more in here.
- [21:57]
A
You know, it's.
- [21:57]
B
Guys, it should be the best of times. It's the best of times and worst of times for this young fledgling EVOL industry. The battery powered helicopter airplane hybrids that promise to zoom over rush hour and save us from traffic. Best of times as in the plan will be flying in the months to come. The White House just approved a pilot program to begin service in select US cities.
- [22:21]
A
But it's the worst of times because
- [22:23]
B
all the key companies are acting like middle schoolers on the playground. They're suing each other, they're yelling at each other. Last year, Joby Aviation sued Archer, claiming corporate espionage. Today Archer is suing Joby, saying that accusing Joby of deceiving regulators and hiding ties to China. It's just like. It feels like middle school. The obvious question for me here as an investor is why can't they just focus on the opportunity? And my fear is that they're kind of admitting that the total addressable market that they've been talking about isn't as big as some have hoped. And that snuffing out a competitor, or at least downgrading a competitor, might be as important as the land grab in establishing your business. If so, then a lot of people might be in for kind of a unwelcome surprise in terms of the potential for these businesses. I hope I'm wrong here, but it's just a weird time for the infighting when they actually or should be ready to get airborne.
- [23:23]
A
Unfortunately, that's all the time we have today. Matt Lu, thanks for sharing your thoughts. As always, people on the program may have interests in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show Notes. Thanks to our producer, Dan Boyd and the rest of the Motley fool team for Matt, Lou and myself. Thanks for listening and we'll chat again soon.